(The Center Square) — According to a new report by the Reason Foundation’s Pension Integrity Project, the state’s public unfunded pension liabilities are expected to rise to $1.3 trillion in fiscal year 2022 if investment returns in the stock market are 0% or less.
When fiscal year 2022 pension financial reports are made public, the unfunded liabilities of 118 state public pension plans are expected to exceed $1 trillion in 2022, according to the analysis. Year ended June 30.
According to the analysis, early indicators point to investment returns of around -6% on average for fiscal year 2022 for many public pension systems, as equities fell due to soaring inflation and other factors.
A -6% return translates to $1.3 trillion in overall unfunded liabilities for state-run public pension plans, nearly double what it was in fiscal year 2021 of 783 billions of dollars. The overall funded ratio of public pension plans would fall to 75% in 2022, from 85% in 2021.
The Public Pensions Forecaster 2022available free to the public, allows users to preview changes in public pension system funding measures for major state-run pension schemes.
Washington State is in the best shape, according to the analysis, which is more than fully funded at 107%. Wisconsin is the only other state whose pension plans are 100% fully funded. New York (99%), Delaware (98%), South Dakota and Nebraska (93% each) should all have nearly fully funded pension plans.
Hawaii is in the worst situation with 58% expected unfunded, followed by South Carolina (56%), Illinois (52%), New Jersey (49%) and Connecticut (48%) which complete the five worst states.
The California Public Employees Retirement System (CalPERS) would create more than $4,057 in debt for every Californian if CalPERS’ investment return is -6%.
If returns are -6%, CalPERS’ unfunded liabilities would grow from $101 billion in 2021 to $159 billion in 2022, or an average debt of $4,057 for every Californian. Its funded ratio would also fall to 73.6% from 82.5% in 2021. That means state employers would have less than three-quarters of the assets they need to pay pensions already promised to workers.
The largest public pension system in the United States, notes the analysis, “provides a good example of the significant impact that a poor year of investment performance can have on unfunded liabilities, public employees and taxpayers. “.
Texas’ teachers’ retirement system is also expected to be in worse shape after already reporting $26 billion in unfunded liabilities in 2021. If it posts annual returns of -6%, its unfunded liabilities will rise to $40 billion. dollars.
Overall, the Texas forecast doesn’t look good, Ryan Frost, policy analyst for the Pension Integrity Project, told The Center Square.
“This year’s poor investment returns will add billions in unfunded liabilities to public employee and teacher retirement systems in Texas,” Frost said. “The rapidly growing pension debt and the resulting costs of paying it down are already taking money from classrooms, public safety and other public services.
“Although Texas has enacted public pension reforms to address growing debt in recent years, our projections show that a -6% return for 2022 will negate nearly all of the gains made from investment returns. historical highs of both regimes in 2021.”
As for Florida’s third-most populous state, he said, if its state pension system, FRS, returns -6%, it could wipe out most of the gains made by FRS in 2021.
“To hedge for future downturns, Florida lawmakers should lower FRS’s 6.8% return on investment expectations, instead using a short-term market forecast figure, so that FRS is more in line with what experts predict that the market will come back in the next 10 to 15 years,” he suggested.
The foundation argues that most state and local pension plans need to be reformed. “State pension plans, as a whole, have struggled to reduce unfunded liabilities to less than $1 trillion since the Great Recession, seeing that number climb to nearly $1.4 trillion in 2020” , did he declare.
A good year of returns in 2021 was not a sign of stabilization, but an outlier among several decades of difficult public pension financing, he adds, warning that “many pension schemes are almost as vulnerable to shocks financial than they were in the past”.